Interest rate cut hopes fade as food prices soar 10%

The August figure was the highest annual rise ever recorded by the British Retail Consortium.

This time last year, food price inflation was running at just 2.1 per cent.
But there was a glimmer of hope for hard-pressed families with the smallest month-on-month rise for five months.

Cash strapped: Food prices have soared by 10 per cent in the last month

The August increase of 0.3 per cent was sharply down on the 1.9 per cent in July and the lowest since a no- change reading in March.

BRC director-general Stephen Robertson said the data 'offered the prospect that we may be nearing the peak of food inflation'.

But there was bad news elsewhere in the BRC survey. Its overall Shop Price Index, which covers a range of high street goods, jumped to 3.8 per cent in August,
0.6 per cent up on July.

The rise hit hopes that the Bank of England might cut interest rates at its meeting today to revive the flatlining economy.

Although the Bank is under severe pressure to make big cuts, the move could further stoke inflation by raising the cost of imports. The current weakness of the pound is another key factor.

Many UK retailers pay in dollars when sourcing goods and sterling's slide against the dollar means they end up paying higher prices for their imports - which are then passed on to customers.

Yesterday the pound fell more than a cent, to $1.77. Howard Archer, economist at Global Insight, said the increase in shop prices showed retailers were increasingly trying to pass on their elevated costs.

The BRC said the rise had been driven by more expensive furniture, floorcoverings, books and home entertainment. On food, the organisation said prices of pork, milk and beef have jumped 20 per cent in the last 12 months.

Farmers have been hit by massive rises in the cost of grain for feed and higher fuel prices.

Research from the EU has shown food prices in Britain are rising more quickly than in other economies around the world.

The latest figures from the Daily Mail's own Cost of Living Index last month showed a 19.9 per cent annual rise in food and drink prices and a staggering 25 per cent on food alone.

The major changes in the Mail's August shopping bag included a thick sliced white loaf, up by 50 per cent from 48p in August 2007 to 72p, and a 420g tin of baked beans, up from 25p to 31p - a rise of 24 per cent.

Milk prices increased by 26 per cent, with the average semiskimmed six pint container now on sale for £2.12.

The largest single jump was the price of corn oil, which rocketed from 49p to £1.38, reflecting global food shortages.

The soaring food prices have seen many customers switch to discount retailers like Aldi and Lidl.